Reserves for Losses and Loss Settlement Expenses

9 Months Ended

Sep. 30, 2024

RESERVES FOR LOSSES AND LOSS SETTLEMENT EXPENSES

Property insurance indemnifies an insured with an interest in physical property for loss of, or damage to, such property or the loss of its income-producing abilities. Casualty insurance is primarily concerned with losses caused by injuries to persons and legal liability imposed on the insured for such injury or for damage to property of others. In most cases, casualty insurance also obligates the insurance company to provide a defense for the insured in litigation, arising out of events covered by the policy.

Liabilities for losses and loss settlement expenses reflect management's best estimates at a given point in time of what we expect to pay for claims that have been reported and those that have been incurred but not reported ("IBNR"), based on known facts, circumstances, and historical trends. Because property and casualty insurance reserves are estimates of the unpaid portions of incurred losses that have been reported to us, as well as losses that have been incurred but not reported, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses and related loss settlement expenses may vary materially from recorded amounts. We regularly update our reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported as a component of losses and loss settlement expenses incurred in the period such changes are determined.

The determination of reserves (particularly those relating to liability lines of insurance that have relatively longer lag in claim reporting) requires significant work to reasonably project expected future claim reporting and payment patterns. If, during the course of our regular monitoring of reserves, we determine that coverages previously written are incurring higher than expected losses, we will evaluate an appropriate response that may include, among other things, increasing the related reserves. Any adjustments we make to reserves are reflected in operating results in the year in which we make those adjustments. We engage an independent third-party to render an opinion as to the reasonableness of our statutory reserves annually. The actuarial opinion is filed in those states where we are licensed.

On a quarterly basis, we perform a detailed review of IBNR reserves. This review includes a comparison of results from the most recent analysis of reserves completed by both our internal and independent third-party actuaries. Senior management meets with our actuarial team to review, on a regular and quarterly basis, the adequacy of reserves based on results from the actuarial analysis. There are two fundamental types or sources of IBNR reserves. We record IBNR reserves for "normal" types of claims and also specific IBNR reserves related to unique circumstances or events. A major hurricane is an example of an event that might necessitate establishing specific IBNR reserves because an analysis of existing historical data would not provide an appropriate estimate.

We do not discount loss reserves based on the time value of money.

The following table provides an analysis of changes in our property and casualty losses and loss settlement expense reserves at September 30, 2024 and December 31, 2023 (net of reinsurance amounts):



	September 30, 2024		December 31, 2023
Gross liability for losses and loss settlement expenses at beginning of year	$	1,638,755	$	1,497,274
Ceded losses and loss settlement expenses	(191,640)		(146,875)
Net liability for losses and loss settlement expenses at beginning of year	$	1,447,115	$	1,350,399
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	568,480	$	701,664
Prior years	(361)		67,750
Total incurred	$	568,119	$	769,414
Losses and loss settlement expense payments for claims occurring during
Current year	$	113,707	$	191,899
Prior years	314,090		480,800
Total paid	$	427,797	$	672,699
Net liability for losses and loss settlement expenses at end of period	$	1,587,437	$	1,447,115
Ceded losses and loss settlement expenses	207,504		191,640
Gross liability for losses and loss settlement expenses at end of period	$	1,794,941	$	1,638,755

There are a multitude of factors that can impact loss reserve development. Those factors include, but are not limited to, historical data, the potential impact of various loss reserve development factors and trends including historical loss experience, legislative enactments, judicial decisions, legal developments in imposition of damages, experience with alternative dispute resolution, results of our medical bill review process, the potential impact of salvage and subrogation and changes and trends in general economic conditions, including the effects of inflation. All of these factors influence our estimates of required reserves and for long tail lines these factors can change over the course of the settlement of the claim. However, there is no precise method for evaluating the specific monetary impact of any individual factor on the development of reserves.

Generally, we base reserves for each claim on the estimated ultimate exposure for that claim. We believe that it is appropriate and reasonable to establish a best estimate for reserves within a range of reasonable estimates, especially when we are reserving for claims for bodily injury, disabilities and similar claims, for which settlements and verdicts can vary widely. We believe our approach produces reserve amounts that are reasonably consistent as to their relative position within a range of reasonable reserves from year-to-year. However, conditions and trends that have affected the reserve development for a given year do change.

Because of the type of property coverage we write, we have potential exposure to environmental pollution, mold and asbestos claims. Our underwriters are aware of these exposures and use riders or endorsements to limit exposure. We are not aware of any significant contingent liabilities related to environmental issues.

Reserve Development

The Company business experienced $3.2 million and $0.4 million of favorable reserve development in net reserves for prior accident years for the three- and nine-month periods ended September 30, 2024, respectively. The favorable reserve development was driven primarily by reductions in prior year reserves as catastrophe experience

emerged better than expected. Non-catastrophe development was neutral reflecting favorable development in commercial automobile and property lines, offset by precautionary strengthening in other liability lines of business due to continued uncertainty in future loss cost trends related to economic and social inflation.

During 2023, the Company made additional refinements to its reserve review processes and analyses, including increased segmentation on unique exposures, which resulted in deeper insights and understanding of loss experience and significant movements in reserve development across a range of commercial liability lines of business. The significant driver of the reserve strengthening was an increase in long-tailed other liability reserves primarily due to increased loss cost trends related to economic and social inflation. The commercial automobile line of business also experienced reserve strengthening in reaction to continuing loss trends in post-2020 accident years. These increases were partially offset by favorable development in workers' compensation and fire and allied lines.